 The effect of proximity to political power on corporate cash policyEfstathios Magerakis (), Christos Pantzalis and Jung Chul Park Journal of Corporate Finance, 2023, vol. 82, issue C Abstract: We expand on prior evidence that national-level policy uncertainty affects corporate cash policies and hypothesize that political geography has a significant effect on corporate cash holdings as bi-annual shifts in firms' location on the political map give rise to both time- and spatially-varying levels of exposure to policy risk. We use a state-level index of political alignment with the President as a proxy for political geography and empirically confirm that companies headquartered in states closely aligned with the President tend to increase their cash holdings. Moreover, and in line with the notion that policy uncertainty associated with proximity to political power provides a precautionary motive for holding more cash, the cash flow sensitivity of cash is more pronounced among firms that are financially constrained and politically unconnected. Finally, our tests suggest that such corporate cash management policy in the face of exposure to policy risk can have value implications. Keywords: Political geography; Proximity to political power; Policy risk; Cash policy; Cash flow sensitivity; Precautionary saving motive; Financial constraints (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000974 DOI: 10.1016/j.jcorpfin.2023.102448 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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